Bankruptcy in Family Law Matters

Bankruptcy is the legal declaration that a person is unable to pay their debts within a reasonable time. When a person is declared bankrupt, nearly all of their assets are placed with a bankruptcy trustee and then sold to pay the person’s debts. If a person is declared bankrupt during the course of a marriage or during the course of a Family Law property dispute, it can have a significant impact on both parties involved.

The reason to that is because the bankrupt then cannot deal with or transfer their assets which can lead to frustration for both parties involved in the marriage or the family law property dispute, particularly the non-bankrupt spouse, as their ability to further negotiate directly with their bankrupt spouse is very limited.

Rights and Restrictions of the Bankrupt Party
Unless the Court gives permission, a bankrupt party is not entitled to make submissions to the Court in relation to property that has been vested in the Trustee.

However, the bankrupt party does have a right to make submissions in relation to property owned by the non-bankrupt spouse that has not been vested in the Trustee.

A person who is bankrupt or becomes bankrupt and is a party to Family Court proceedings must notify the Court at the start of the proceedings or as soon as they become bankrupt.

Rights of the Non-Bankrupt Party
When there is one party to a property settlement who is bankrupt and the other party is not, the non-bankrupt party may make an application to the Family Court for an injunction.

The injunction’s purpose is to stop the Trustee from declaring or distributing any assets or property amongst the bankrupt party’s creditors before the property settlement matter is resolved.

The Court then has the responsibility to determine the competing rights of creditors and the non-bankrupt party, however neither party has priority.

The Court has the power to make an order that the Trustee transfer property to the non-bankrupt party.

If you think you are at risk of a bankruptcy and family law matter, Straits Lawyers are here to help. We are now offering online services in both English and Chinese.

Please note that this article does not constitute legal advice and Straits Lawyers will not be legally responsible for any actions you take based on this article.